Question 1

In comparing futures contracts with options contracts,we can say that

Accepted Answer

A)  in a futures contract, the buyer and seller have symmetric rights, whereas in an options contract, the buyer and seller have asymmetric rights. 
B)  in a futures contract, the buyer and seller have asymmetric rights, whereas in an options contract, the buyer and seller have symmetric rights. 
C)  in both futures and options contracts, the buyer and seller have symmetric rights. 
D)  in both futures and options contracts, the buyer and seller have asymmetric rights. 
A)  in a futures contract, the buyer and seller have symmetric rights, whereas in an options contract, the buyer and seller have asymmetric rights. 
B)  in a futures contract, the buyer and seller have asymmetric rights, whereas in an options contract, the buyer and seller have symmetric rights. 
C)  in both futures and options contracts, the buyer and seller have symmetric rights. 
D)  in both futures and options contracts, the buyer and seller have asymmetric rights.

Question 2

The person on the other side of a transaction is referred to as the

Accepted Answer

A)  derivator. 
B)  counterparty. 
C)  hedger. 
D)  speculator. 
A)  derivator. 
B)  counterparty. 
C)  hedger. 
D)  speculator.

Question 3

The buyer of a futures contract

Accepted Answer

A)  assumes the short position. 
B)  has the obligation to deliver the underlying financial instrument at the specified date. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  may, at his or her option, deliver or receive the underlying financial instrument at the specified date. 
A)  assumes the short position. 
B)  has the obligation to deliver the underlying financial instrument at the specified date. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  may, at his or her option, deliver or receive the underlying financial instrument at the specified date.

Question 4

How does hedging affect the flow of funds in the financial system?

Accepted Answer

A)  It reduces it since it is a sign that investors do not like risk. 
B)  It reduces it because it increases risk by encouraging speculation. 
C)  It increases it because it reduces risk thus encouraging more people to make financial investments. 
D)  It increases it by encouraging more speculation. 
A)  It reduces it since it is a sign that investors do not like risk. 
B)  It reduces it because it increases risk by encouraging speculation. 
C)  It increases it because it reduces risk thus encouraging more people to make financial investments. 
D)  It increases it by encouraging more speculation.

Question 5

An option buyer

Accepted Answer

A)  has a greater insurance benefit than the purchaser of a futures contract. 
B)  bears the risk of unfavorable price movements. 
C)  is purchasing a naked option if he or she does not also own the underlying asset. 
D)  generally will incur a lower cost than will the purchaser of a futures contract. 
A)  has a greater insurance benefit than the purchaser of a futures contract. 
B)  bears the risk of unfavorable price movements. 
C)  is purchasing a naked option if he or she does not also own the underlying asset. 
D)  generally will incur a lower cost than will the purchaser of a futures contract.

Question 6

The buyer of a futures contract

Accepted Answer

A)  assumes the short position. 
B)  assumes the long position. 
C)  may not sell the contract without the permission of the original seller. 
D)  has the obligation to deliver the underlying financial instrument at the specified future date. 
A)  assumes the short position. 
B)  assumes the long position. 
C)  may not sell the contract without the permission of the original seller. 
D)  has the obligation to deliver the underlying financial instrument at the specified future date.

Question 7

An investor who is considering hedging by selling Treasury futures can also hedge by

Accepted Answer

A)  buying Treasury put options. 
B)  selling Treasury put options. 
C)  buying Treasury call options. 
D)  buying European Treasury options. 
A)  buying Treasury put options. 
B)  selling Treasury put options. 
C)  buying Treasury call options. 
D)  buying European Treasury options.

Question 8

When reading an options listing for a company like Microsoft

Accepted Answer

A)  both call and put options are listed. 
B)  call options, but not put options, are listed. 
C)  put options, but not call options, are listed. 
D)  neither call nor put options are listed. 
A)  both call and put options are listed. 
B)  call options, but not put options, are listed. 
C)  put options, but not call options, are listed. 
D)  neither call nor put options are listed.

Question 9

In an options contract,another name for the strike price is the

Accepted Answer

A)  market price. 
B)  exercise price. 
C)  equilibrium price. 
D)  fixed price. 
A)  market price. 
B)  exercise price. 
C)  equilibrium price. 
D)  fixed price.

Question 10

Which of the following is NOT an advantage of a futures contract over a forward contract?

Accepted Answer

A)  reduced counterparty risk 
B)  increased flexibility 
C)  lower information cost 
D)  increased liquidity 
A)  reduced counterparty risk 
B)  increased flexibility 
C)  lower information cost 
D)  increased liquidity

Question 11

One difference between futures and options contracts is

Accepted Answer

A)  funds change hands daily in the case of options but not with futures. 
B)  funds change hands daily in the case of futures, but not with options. 
C)  in the case of futures, funds only change hands when they are exercised. 
D)  futures are designed to reduce risk while options are not. 
A)  funds change hands daily in the case of options but not with futures. 
B)  funds change hands daily in the case of futures, but not with options. 
C)  in the case of futures, funds only change hands when they are exercised. 
D)  futures are designed to reduce risk while options are not.

Question 12

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is the

Accepted Answer

A)  lack of privacy. 
B)  need to assess creditworthiness. 
C)  desire for more flexibility. 
D)  limited size of the market. 
A)  lack of privacy. 
B)  need to assess creditworthiness. 
C)  desire for more flexibility. 
D)  limited size of the market.

Question 13

A call option is said to be "in the money" if

Accepted Answer

A)  it is written on a Treasury bill or other money-market asset. 
B)  it has increased in price since it was first written. 
C)  the price of the underlying asset is currently greater than the strike price. 
D)  the price of the underlying asset is currently greater than the strike price plus the option premium. 
A)  it is written on a Treasury bill or other money-market asset. 
B)  it has increased in price since it was first written. 
C)  the price of the underlying asset is currently greater than the strike price. 
D)  the price of the underlying asset is currently greater than the strike price plus the option premium.

Question 14

Why may some investors prefer forward contracts to futures?

Accepted Answer

Forward contracts ar

Question 15

Forward transactions originated in the market for

Accepted Answer

A)  common stock. 
B)  corporate bonds. 
C)  government bonds. 
D)  agricultural and other commodities. 
A)  common stock. 
B)  corporate bonds. 
C)  government bonds. 
D)  agricultural and other commodities.

Question 16

Which of the following is NOT a result of the ability of investors to hedge?

Accepted Answer

A)  increased access to funds by firms and households 
B)  investors are more willing to invest 
C)  increased risk aversion 
D)  slower economic growth 
A)  increased access to funds by firms and households 
B)  investors are more willing to invest 
C)  increased risk aversion 
D)  slower economic growth

Question 17

Suppose you are a manager for a company that produces grape jelly.Which of the following is the best way for you to reduce your risk?

Accepted Answer

A)  acquire a derivative that increases in value if grape prices increase 
B)  acquire a derivative that increases in value if grape jelly prices increase 
C)  sell a derivative that increases in value if grape prices increase 
D)  sell a derivative that increases in value if grape jelly prices increase 
A)  acquire a derivative that increases in value if grape prices increase 
B)  acquire a derivative that increases in value if grape jelly prices increase 
C)  sell a derivative that increases in value if grape prices increase 
D)  sell a derivative that increases in value if grape jelly prices increase

Question 18

Explain the difference between a credit swap and a credit default swap.

Accepted Answer

A credit swap is a contract in which int

Question 19

Which of the following financial futures contracts are traded in the United States?

Accepted Answer

A)  interest rates 
B)  stock indexes 
C)  currencies 
D)  all of the above 
A)  interest rates 
B)  stock indexes 
C)  currencies 
D)  all of the above

Question 20

All of the following are roles of an exchange EXCEPT

Accepted Answer

A)  instituting margin requirements on futures contracts. 
B)  marking to market at the end of each day. 
C)  eliminating the need for buyers and sellers of futures contracts to be concerned about the creditworthiness of each other. 
D)  reducing the default risk involving forward contracts. 
A)  instituting margin requirements on futures contracts. 
B)  marking to market at the end of each day. 
C)  eliminating the need for buyers and sellers of futures contracts to be concerned about the creditworthiness of each other. 
D)  reducing the default risk involving forward contracts.

In comparing futures contracts with options contracts,we can say that

The person on the other side of a transaction is referred to as the

The buyer of a futures contract

How does hedging affect the flow of funds in the financial system?

An option buyer

The buyer of a futures contract

An investor who is considering hedging by selling Treasury futures can also hedge by

When reading an options listing for a company like Microsoft

In an options contract,another name for the strike price is the

Which of the following is NOT an advantage of a futures contract over a forward contract?

One difference between futures and options contracts is

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is the

A call option is said to be "in the money" if

Why may some investors prefer forward contracts to futures?

Forward transactions originated in the market for

Which of the following is NOT a result of the ability of investors to hedge?

Suppose you are a manager for a company that produces grape jelly.Which of the following is the best way for you to reduce your risk?

Explain the difference between a credit swap and a credit default swap.

Which of the following financial futures contracts are traded in the United States?

All of the following are roles of an exchange EXCEPT

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 7: Derivatives and Derivative Markets

In comparing futures contracts with options contracts,we can say that

The person on the other side of a transaction is referred to as the

The buyer of a futures contract

How does hedging affect the flow of funds in the financial system?

An option buyer

The buyer of a futures contract

An investor who is considering hedging by selling Treasury futures can also hedge by

When reading an options listing for a company like Microsoft

In an options contract,another name for the strike price is the

Which of the following is NOT an advantage of a futures contract over a forward contract?

One difference between futures and options contracts is

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is the

A call option is said to be "in the money" if

Why may some investors prefer forward contracts to futures?

Forward transactions originated in the market for

Which of the following is NOT a result of the ability of investors to hedge?

Suppose you are a manager for a company that produces grape jelly.Which of the following is the best way for you to reduce your risk?

Explain the difference between a credit swap and a credit default swap.

Which of the following financial futures contracts are traded in the United States?

All of the following are roles of an exchange EXCEPT

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters